ALTERNATIVES | January Commentary

February 26, 2018

 

 

 

A few of the potential risks to growth include less accommodative postures by many global central banks, U.S mid-term elections, general asset valuation levels, and geopolitical risk.

 

Long/short equity strategies benefited as global equity market indices were generally up.  Record flows of assets into equity funds, as well as upward revisions to earnings estimates resulting from tax reform, contributed to equity performance. The Fund’s top three sector exposures all outperformed the broader market.

 

Event driven strategies benefited from announced merger and acquisition volume for January, which was quite high, with the first three weeks producing the most volume since 2000.  Deal spreads remain attractive and rising interest rates contribute to strategy returns.  However, the DOJ lawsuit to block a media transaction will likely hang over the market until resolved, with a March trial date set.

 

Relative value strategies performed well despite a significant rise in interest rates.  The yield on the U.S. 10 year note increased 32 basis points to 2.72%. However, tightening credit spreads more than offset the interest rate rise. Additionally, volatility increased more than 20% providing convertible arbitrage with a tailwind.

 

Macro strategies had very strong performance, once again led by the Fund’s systematic strategies.  During the 4th quarter asset classes - beyond equities - began to exhibit trends and this carried forward into 2018.  Energy, precious metals and industrial metals all had strong performance within the commodities space.  The U.S. dollar further weakened against other developed currencies and interest rates moved higher.  Systematic managers were well positioned to take advantage.
 

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